Gross domestic product, which measures total goods and services output within US borders, edged up at a weaker-than-expected 0.6 per cent annual rate in the fourth quarter and for the full year advanced only 2.2 per cent - the slowest growth in annual GDP since 1.6 per cent in 2002.

Analysts surveyed by Reuters had forecast that fourth-quarter GDP would grow at a 1.2 per cent rate. The lacklustre fourth quarter performance followed a booming third quarter when GDP surged at a 4.9 per cent rate and is likely to fuel fears the economy is at risk of tumbling into recession in 2008.

Spending on new-home building plunged 23.9 per cent in the fourth quarter, the biggest quarterly drop in 26 years, after falling 20.5 per cent in the third quarter. Over the course of the full year, residential spending fell 16.9 per cent, the worst annual performance since 1982.

There were also signs that prices were bubbling higher as a gauge favored by the Federal Reserve - personal consumption spending excluding food and energy items - gained at a 2.7 per cent annual rate in the fourth quarter.

That was well ahead of the third quarter's two per cent increase and Wall Street expectations. It was the biggest increase for any three months in one and a half years.

The Fed already has cut US interest rates by 1 and three quarter percentage points since last fall and is expected to announce later on Wednesday that it is reducing them again, while the Bush administration is negotiating with Congress on a fiscal stimulus package to try to spur growth.

Consumer spending, which fuels more than two-thirds of U.S. growth, held up relatively well in the fourth quarter, growing at a two per cent annual rate compared with 2.8 per cent in the third quarter.

But growth in consumer spending for the full year 2007 was the softest since 2003, a further indication that weakening housing prices and markets are putting a strain on household finances and confidence. -- REUTERS